What would China’s exit strategy be?

A Wall Street Journal article is asking that.  Economists believe that China’s stimulus spending might in fact have a bigger effect on its economy than expected.  The problem is, as other economies are responding to questions about how they would exit the market after a significant amount of liquidity has been pumped into their economies, the Chinese government has done nothing of the sort.

The World Bank on Thursday raised its forecast for China’s growth this year to 7.2% from 6.5%, citing a bigger-than-expected stimulus effect.

By some indicators, credit in China is even looser than in the U.S., where the Federal Reserve has extended unprecedented support to private markets. As of May, the broad M2 measure of money supply in the U.S. was about 9% higher than a year earlier. The same indicator in China was expanding at a rate of more than 25%.

Somehow I feel confident that no matter how much oversupplied the Chinese economy becomes of their currency, its government, regardless of the means (secretly or not, honestly or otherwise), would be able to control the effects of its monetary policy.

Read from the WSJ.


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